Is it possible to save money by paying lump sum at the exact juncture of switching mortgages?

C

Carmoney

Registered User
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Basically, my mortgage is coming to the end of its fixed rate this summer.
If I switch mortgage providers then is it possible to pay off an extra lump sum at the point of closing with one lender and before taking up the mortgage with a new lender?
And is this of a financial advantage to me?

So my mortgage will be v close to €200k at the point of switch.
I have some savings that I would like to use to overpay.
So could I get a new mortgage for €180k and pay the difference myself via solicitor?

I am thinking that this €20k I put in would mean a smaller mortgage with the new lender which would mean it finishes earlier and therefore costs me less?

Thanks
 
Talk with your solicitor, but I don't believe there's any reason you can't.
 
1) Pay the lump sum off your mortgage before you switch.
2) You can probably pay it now as the break fee would be very small and would be covered by the interest saved - but check the arithmetic.
3) No need to involve your solicitor
4) Apply for a mortgage of €180k - that might bring you into a lower LTV band than €200k.
5) If you are switching to a cash-back mortgage, you could risk taking out a mortgage of €200k and then paying off a lump-sum so that you get the 2% cash-back. But the break fee could be higher than the 2% cash-back.
 
thanks, will def give it a go so.

it just seemed to me that overpaying €20k now only reduces my mortgage by a very small amount whereas paying it at the point of switch could actually mean knocking €20k off it. And that seems too easy...

it would def bring me into a lower LTV band as you mention.

just feels like I have been paying mortgage for ever and have so much more to go. any little bit of hope on it might make it bearable.
 
Carmoney said:
It just seemed to me that overpaying €20k now only reduces my mortgage by a very small amount whereas paying it at the point of switch could actually mean knocking €20k off it. And that seems too easy...
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This makes no sense.
Paying €20k off reduces the mortgage outstanding capital balance by €20k whenever you do it!

I'm assuming that any fixed rate breakage fee is zero.
I'm also assuming that you don't have other higher priorities for the €20k such as higher cost debts, pension savings or immediate/imminent expenditure.
 
Carmoney said:
it just seemed to me that overpaying €20k now only reduces my mortgage by a very small amount whereas paying it at the point of switch could actually mean knocking €20k off it.
Click to expand...

Carmoney

I am trying to figure out how people think about money and what mistakes they make.

Would you mind expanding on this?

Brendan
 
Paying off 20k on your mortgage now reduces it by 20k, what is your thinking in that it doesn't reduce it? Same difference, in fact you'll save more if you pay it now (assuming no break fee) than if you pay it off in a few months time as you won't have paid interest on that 20k for the next few months.
 
Yes, you just request a new mortgage for 180k and evidence 20k in savings to pay down the difference. The AIP will probably include a comment that 200k balance will be reduced to 180k ahead of drawdown by your solicitor.

Of course as others point out you can pay this 20k off now as well
 
If not paying off before you make the switch, item 3) in Brendan's list doesn't apply, you'll need to let your solicitor know, and transfer the difference to them.
 
I am trying to figure out how people think about money and what mistakes they make.
Click to expand...
oh god, am I asking stupid questions?

By my reckoning, a €200k loan could cost me €236k over the duration. But a €180k loan could cost me €212k or even less.
So a €20k lump sum would benefit me more in the second case?
 
Carmoney said:
oh god, am I asking stupid questions?

By my reckoning, a €200k loan could cost me €236k over the duration. But a €180k loan could cost me €212k or even less.
So a €20k lump sum would benefit me more in the second case?
Click to expand...

If you knock €20k off your loan, you won't have a €200k loan anymore. You'll have a €180k loan. Even if you knock it off the current loan, rather than waiting until you switch.
 
Thanks. Am trying to get it. Def don't have finance smarts. Can see how I was talked into a mortgage lasting til I'm 70 now.
 
@Carmoney
  • What is your property value?
  • What is your current monthly repayment?
  • What lender are you switching to?
  • How long are you thinking of fixing for, and at what interest rate?
  • What is your BER?
 
Carmoney said:
Can see how I was talked into a mortgage lasting til I'm 70 now.
Click to expand...
That’s not really the best way to think about this either. The longer term means you have lower monthly repayments, which gives you flexibility should something happen in your life making it difficult to repay the mortgage for a period of time. If you decide to overpay the mortgage you should opt for lower monthly repayments not shortening the term, to maintain this flexibility.
 
Back in the day I had a split mortgage. Half fixed and half variable. At the end of every year I used to pay a lump sum off my variable rate mortgage. I requested at the time to reduce the term of the mortgage when I did this rather than reduce the monthly repayment. So my repayment stayed the same but the term reduced. As a result, the term of my mortgage just shrunk and shrunk as I was paying more off it each year. Eventually I cleared the variable rate one.
I then switched the fixed mortgage to a variable rate one and started doing the same.

If you are concerned about your mortgage ending at age 70 you could consider doing this. I would suggest that your call the mortgage department in their head office and discuss this with someone as your regular branch staff will not understand how this works.
 
I would be cautious about reducing the term. The longer the term the lower the monthly repayments. In the event that your circumstances change this gives you more flexibility/headroom to continue to meet your mortgage repayments.
 
You could have opted for lower monthly repayments but continued to pay the higher amount (on just the variable bit in your case). The interest you’d end up paying the bank for the term of the mortgage would be identical, but you’d have more flexibility and reduced risk because you could stop overpaying and use the money to deal with a medical emergency or whatever.

The only reason I can see for opting for a shorter term is if you’re very certain of your income for the next 10/20/30 years and you think you may not have the discipline to keep overpaying, maybe I’m missing something though.
 
  • What is your property value? - €400
  • What is your current monthly repayment? €1400
  • What lender are you switching to? Just looking around at the moment.
  • How long are you thinking of fixing for, and at what interest rate? - open to fixing for around 3 years and at around 2.5% I'd say
  • What is your BER? - C
  • no other debts. 2 children in school.
  • would like to reduce term by overpaying either in regular instalments or in lump sums. I guess overpaying makes more sense alright. thanks
 
I don't think that you addressed Brendan's earlier question as to why you thought that making the €20k repayment later rather than sooner would make more sense?

As others have said, making lump sum or regular repayments over and above your normal scheduled repayments will shorten the effective term of your mortgage (assuming that you continue paying the normal scheduled repayments otherwise) and will save you (perhaps significantly) in terms of the total interest paid over the lifetime of the mortgage.

You can model the effect of accelerated repayments on the total effective cost and term of a mortgage using a calculator like this:

Karl's Mortgage Calculator

Mortgage calculator with graphs, amortization tables, overpayments and PMI
www.drcalculator.com
Making a €20k lump sum repayment now will save you more than doing it later. I'm assuming that your fixed rate breakage fee will be zero and that you don't have any more pressing use for the money - e.g. imminent essential expenditure, higher cost debts that should be tackled first, pension that might need beefing up etc.
 
@Carmoney You are already eligible for Avant's 1.95% rate because your loan-to-value ratio is below 60%. You don't need to make any overpayment to be eligible for this.

If I were you, I would start the switch now – the break fee is likely to be very small even if you switch before your current fixed rate expires. Switching now is a particularly good idea if your current lender is KBC or Ulster Bank. That's because Avant will give you €1,500 cashback if you start the switch before the end of March (provided you use a broker who is an Avant "Gold Partner").

What is your current interest rate and when did you fix (month and year)?
 
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